The Sum of Experiences

This note was originally published at 8am on March 29, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Be who you are and say what you feel because those who mind don’t matter and those who matter don’t mind.”

-Dr. Seuss


I’m sure after reading the quote above, especially after reading yesterday’s declaration of the Bernanke War, you are wondering if Keith has gone soft.  Well, since I’ve known Keith for upwards of 15 years, I can say categorically he hasn’t gone soft, but he has handed the proverbial hockey stick on today’s Early Look to me as he is flying up to Thunder Bay, Ontario.


Yesterday, we had a long internal debate about branding and marketing.  The key questions, which of course are similar for your organizations, related to who we are, who we want to be, and what people actually think we are.  These are challenging questions for any organization, especially one that perceives itself to be the standard bearer for Wall Street 2.0.


Naturally, being the social media addict that I am, after our meeting I posed the question to the Twitter Sphere.  Specifically, I tweeted:


@HedgeyeDJ Question for the day: What is a brand?


The best answer actually came from a good friend and former colleague who tweeted back that “a brand is specifically the *perceived* sum of all the experiences, actual and emotional, associated with your brand.”  If you think about it, that’s not totally dissimilar to a stock price or stock index price.  It is actually the sum of all fundamental inputs, plus the behavioral or emotional input of market participants.


In the Chart of the Day, we actually emphasize that last point in looking at Chinese equities.  The Shanghai Composite, which is a capitalization weighted index which tracks all A-shares and B-shares listed on the Shanghai Stock Exchange, is at a 10-week low.  Further, the index is only up +3.9% in the year-to-date and is down -22.5% in the last year.  In as much as China is a proxy for global growth, as one of the world’s fastest growing and largest economies, the performance of Chinese equities is a little disconcerting. 


The next key catalyst for the Chinese economy is Chinese PMI, which is out this Saturday.  Ahead of that, as is typical before disappointing Chinese data, rumors are circulating that China will implement another reserve requirement ratio cut.  In theory, this action will free up money supply within the Chinese banking system.  My belief is if the Chinese indeed have to ease again, then it is probably ominous for the Chinese growth outlook.   Incidentally, the last time the Chinese cut the “RRR” was on the weekend of February 19thand the Shanghai Composite is literally in a straight line down since then.


For those that are looking for bullish global growth catalysts, you need to look no further than Morgan Stanley and HSBC.  This morning Morgan Stanley upped its China GDP growth forecast to 9.0% from 8.4%, while HSBC raised its price targets for all major Chinese indices.   HSBC may be on to something as slowing growth is starting to, obviously, be priced into Chinese equities.  As for Morgan Stanley, I’m not sure what they are feeling (or smoking for that matter).


The other key data points from global macro land this morning come from Europe.  As usually occurs when austerity is implemented aggressively, a general strike is underway in Spain this morning.  Interestingly, neither strikes, especially those that result in clashes with the policy, nor austerity are all that positive for economic growth.  I dare say that Spain is starting to look a little like Greece, but don’t take my word for it.  According to the head of the Spanish Banking Federation, “the strike takes us a lot closer to Greece and farther from Germany.”


For starters, I’m not sure Spain was ever all that close to Germany, except perhaps by plane or high speed train.  Germany’s unemployment rate fell -18,000 in March versus an estimate of -10,000 and the unemployment rate is now at 6.7%, which is a 20-year low.  Conversely, the Spanish unemployment rate is just shy of 23%. 


Also, unlike Germany, Spanish credit default swaps have accelerated dramatically recently.  In fact, Spanish 5-year CDS are now trading at 423 basis points, which is up more than 14% since the start of the month.  While still below the all-time high, this measure of risk certainly agrees with the idea that Spain is moving closer to Greece than Germany.  Incidentally, Spain Housing permits were down -25% year-over-year this morning, as well.


I’ll leave you with one last thought this morning from an email my colleague Darius Dale just sent to our team:


“Global cross-asset volatility hasn’t been this low since OCT ’07. Terrifying. Unless, of course, this time is different and we’ve reached “escape velocity”. Bernanke’s war has begun; we’re either off to the races from a growth perspective or things are about to get weird. You have to pick sides at these levels of investor complacency.”


Weird? Indeed.  Almost as weird as starting a Wall Street morning strategy note with a quote from Dr. Seuss.  Or, perhaps, that is all part of the brand . . .


Our immediate-term support and resistance ranges for Gold, Oil (Brent), and the SP500 are now $1652-1689, $122.12-124.96, and 1391-1419, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


The Sum of Experiences - Chart of the Day


The Sum of Experiences - Virtual Portfolio

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